BoE Governor issues warning - the days of cheap mortgages are over.
Interest rates which have sat at 0.5% since March 2009, are likely to rise to 0.75% in early 2016 according to the BoE governor Mark Carney.
He has warned house-holders to prepare themselves for this increase and the rising cost of borrowing. It is feared that many home-owners could be plunged into financial hardship as rates go up.
Home-owners who have taken on a mortgage in the last few years while mortgage rates have been at rock bottom could be in for a massive shock. With some home-owners already struggling to make ends meet, any rate increase could lead to the inability to meet mortgage repayments.
It is expected that the bank rate will slowly rise from 0.5% to 2.25% over the next three years, and those most likely to be impacted are borrowers sitting on a variable rate deal.
While the increase is to be gradual and those borrowers locked into a mortgage will not be immediately impacted by a rate increase, once their agreed term comes to an end they may find the rate at which they can fix their next deal significantly higher and repayments much more expensive.
With so many borrowers not knowing anything but deals fixed while the bank rate has been set at 0.5%, the impact can’t be underestimated.
Home-owners failing to consider what will happen when rates rise, who complacently switch to their lender’s SVR at the end of their deal, could find it too late to source a low rate offer once the interest rates rise and mortgage rates follow suit.
There is concern that the one million borrowers who have taken out a mortgage since rates hit historic lows, have never experienced a hike and will be heavily impacted. A recent study has highlight the fact around a third of mortgage holders could struggle to keep up with their mortgage payments are rates rise.
It is expected that if rates rise as predicted by the financial markets, more than 50% of UK mortgage-holders will pay a higher rate in a year’s time and almost 75% in 2 years time.
To avoid potential financial hardship caused by rising rates call us at Deal Direct to discuss your remortgaging options.
Speak to an adviser on 0800 048 8828 to discuss your mortgage needs.
